New business owners who are creating a start-up company are often overwhelmed by the number of local, state and federal tax regulations that they must follow. Experienced business owners often find that they are so accustomed to paying taxes, that they inadvertently pay more than necessary in an attempt to remain in compliance with the endless tax laws that are implemented and changed on an annual basis.
Proper tax planning can ensure that business owners can remain in compliance with all tax laws, and tax optimization can prevent business owners from paying more than they owe in taxes. There’s nothing more frustrating for business owners than to look around at their office and realize that they have been taxed at least once – if not twice – on everything that they can see and touch. They paid sales taxes on the office chair they are sitting on when they purchased it, and they paid business property taxes on the computer that is front of them. Not to mention, those revenue reports generated on the computer reveal how much of the business profits have been taxed on an annual basis as well.
Here’s a look at a few of the business taxes that California business owners are required to pay:
- Business Property Taxes – Business owners must pay property tax on nearly every piece of property that belongs to the business. For example, all office supplies are taxed and all machinery and equipment used to complete business transactions are taxed. The business building is taxed, whether it is owned by the corporation or being leased from another property owner. Any construction that is in progress that will eventually house the business will be taxed as well.
- City Taxes – Business owners are responsible for paying all taxes imposed by the local municipality. In addition to that, they are taxed on the water and utilities that are used at the business.
- County Taxes – Business owners are required to pay all taxes that are imposed at the county level. The county government may assess a variety of taxes on the business owner, depending on the county in which the business is located.
- State Taxes – California is not known as a welcoming state for business owners, and it imposes many far-reaching taxes on those who do business in the state. From the franchise tax fee to the California state business income tax, much of the revenue generated by a business will be taxed at the state level.
- Federal Taxes – Federal taxes that are imposed on all business owners throughout the country must be paid by those operating in California as well. The federal business tax rate will fluctuate for a business based on the size of the business and the amount of revenue that it generates. For example, the current federal business tax rate for small businesses is about 20 percent.
- Employment Tax – Employers must pay a series of employment taxes based on the number of employees that they have at their organization. Employment taxes include the employer’s contribution to Social Security, Medicare and unemployment taxes. The amount of employment taxes that a business is required to pay can vary greatly based on the number of employees who work for the business.
- Payroll Tax – Payroll taxes are commonly lumped in with employment taxes, but these are two distinct types of taxes. Payroll taxes are the employees’ contribution to Social Security and Medicare, and they are withheld from the employees’ paycheck.
- Disposable Income Tax – So there may not be a specific disposable income tax, but business owners will quickly discover that all of their income is taxed – even the disposable income that they have after paying all of those other taxes. Once a business owner completes their tax filings and fulfills all other bills, they are left with the additional profit that has been generated from their business. Whether the profits are used to make new purchases or investments for the business, or they are used by the business owner to provide for their family, this income is going to be taxed in one form or another at some point along the way. The government has made sure that all income earned or spent is taxed as frequently as possible, so it is inevitable that disposable income will be taxed at some point.
Importance Of Tax Optimization
Tax optimization is not a phrase that every business owner is familiar with, but it’s a process that they need to get to know quickly. Working with a qualified attorney will allow a business owner to get the tax optimization services that they need in order to maximize their revenue and minimize the amount of money that they pay to the government in taxes.
Tax optimization is the process of identifying exactly which taxes are owed, and paying the minimum amount of taxes possible. It does not prevent a business from paying the taxes that they owe, and it in no way condones or allows for tax evasion. Rather, tax optimization allows a business owner to better understand their tax obligations and prevents them from paying more than is necessary in taxes.
Tax planning is an essential part of owning a business, as a business owner must allocate for the money that they have to pay in quarterly taxes. They need to know what will be taxed, how much it will be taxed and when those tax filings will be due. Given the fact that local, state and federal governments impose different sets of tax laws on business owners, tax planning can be a frustrating and overwhelming task. However, it can become quite simple when a business owner in California works with a qualified legal team.
To develop a better understanding of your tax obligations as a business owner and of how local, state and federal state laws apply to your specific situation, contact us today to set up a consultation appointment with one of our experienced business attorneys.